Adopt formalisation to power productivity growth in manufacturing sector
The article discusses the increasing contractualisation in India's formal manufacturing sector, where contract labour's share doubled from 20% in 1999-2000 to 40.7% in 2022-23. This trend is driven by cost avoidance rather than genuine labour flexibility, leading to exploitation of contract workers who face significantly lower wages and are excluded from core labour laws. This contractualisation stifles productivity growth due to issues like principal-agent problems, high labour turnover, and lack of investment in training. The article suggests policy measures like incentivizing longer fixed-term contracts with social security benefits and reviving schemes like PMRPY to promote formalisation and enhance workforce stability and skill accumulation.
Key Points
- Contractualisation in India's formal manufacturing sector has significantly increased, with contract labour's share doubling to 40.7% by 2022-23.
- This rise is primarily driven by cost avoidance, leading to exploitation of contract workers who receive lower wages and lack legal protections.
- Contractual employment negatively impacts productivity due to principal-agent problems, high turnover, and reduced investment in worker training.
- Contract labour-intensive enterprises show significantly lower labour productivity compared to regular labour-intensive ones.
- Policy suggestions include incentivizing longer fixed-term contracts with social security benefits and reviving schemes like PMRPY to promote formalisation.
Exam Facts
- Contract labour's share in manufacturing workforce doubled from 20% (1999-2000) to 40.7% (2022-23).
- Contract workers' wages were 14.47% lower than regular counterparts in 2018-19.
- The Industrial Disputes Act 1947 governs layoffs and retrenchments.
- The Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) was implemented in 2016 and discontinued in March 2022.
Read it. Retain it. Recall it.
Get spaced-repetition flashcards, daily quizzes and offline access — free on Android.